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CarMax, Inc (KMX) Bears Brace for a Pullback

Put buyers anticipate CarMax, Inc will finish below the half-century mark today

by 6/20/2014 11:34 AM
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Option Brief: CarMax, Inc (NYSE:KMX) is rocketing higher today, up over 16% to trade at $52.73, and within striking distance of its record high of $53.08 touched in mid-December. This morning's bull gap was fueled by a strong fiscal first-quarter earnings report and subsequent upgrade to "outperform" at William Blair. Option traders have responded, too, as overall volume is running at about 18 times the average intraday clip, and call volume is at roughly 30 times the norm.

Despite KMX's rally, not everyone is bullish toward the national auto dealer. In fact, the most active strike is the June 50 put, which is experiencing buy-to-open activity, as traders gamble on the shares to pull back below the round-number level by today's close (when the front-month contracts expire). Put buyers paid a volume-weighted average price (VWAP) of $0.21 for the options, meaning they'll profit if the shares are sitting below $49.79 at the closing bell -- with additional gains accruing with each step south of there. On the other hand, the traders will part with no more than the initial cash outlay, should CarMax, Inc (NYSE:KMX) finish today's session above the half-century mark. Looking ahead, the company will host its annual shareholder meeting on Monday.


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